Extreme weather caused by climate change could cause a devastating recession in the future, one expert claims. As Salon reports, the American market isn’t doing enough to respond to the challenges presented by a changing climate — and it could have devastating consequences for the economy.
Paul Griffin, a professor at UC Davis Graduate School of Management, argued that years of research have revealed that the world is once again in a situation where the market is failing to calculate the risk related to current events. The last time this happened, he said, resulted in the Great Recession of 2008. Now, companies are failing to take into account the potential financial devastation that extreme weather events can cause.
“If the market doesn’t do a better job of accounting for climate, we could have a recession—the likes of which we’ve never seen before,” he said in an article published in Nature Energy.
Griffin argued that the increase in temperatures that have been seen in the United States and Europe negatively impact farming and agriculture, as well as energy companies like PG&E, which was forced to file bankruptcy after claiming that weather conditions caused equipment failure that resulted in the devastating wildfires in 2018.
“Right now, energy companies shoulder much of that risk. The market needs to better assess risk, and factor a risk of extreme weather into securities prices,” the professor said. “Without better knowledge of this risk, the average energy investor can only hope that the next extreme event will not trigger a sudden correction to the market values of energy firms.”
Companies like PG&E aren’t the only ones facing risk. He pointed out that oil refineries on the coast are also suffering from an increased risk of flooding and storms.
Climate change, he went on, also impacts the transportation industry, which harms not only those working in that industry, but the people who rely on transportation for their own work.
Other industries that might not immediately come to mind could also face financial challenges. For instance, insurance companies could be hit hard as claims snowball.
“Extreme heat events can create uncertain and longer duration power outages, threaten critical infrastructure, exacerbate energy supply and demand imbalances, and trigger significant legal liability for energy firms,” he said.
But despite this, Griffin argued, industries are slow to respond to what he sees as obvious risks, though he acknowledges that it is hard to predict exactly what form future impacts from climate change could take.
Still, Griffin isn’t the only one raising the alarm. Financial institutions have recognized that climate change could have a devastating impact far beyond that seen in the Great Recession, Salon reports.